The second type of deal is a “share” purchase and involves purchasing the entire business itself. This is different because it includes all assets and liabilities owned by the business. This means employees, receivables, payables, short- and long-term debt, taxes owed, warranty obligations—everything. You assume the whole business entity from the old owners.
An asset deal is most common because new owners typically do not want to assume the payables and other debts the old business may have accumulated. Try as you might to unearth as many dirty details as possible, all it takes is one surprise for things to take a nosedive. How excited are you going to be if you find out you must now pay cash up front for all your materials because the previous owner ran up huge unpaid bills with suppliers? Small detail, huge pain.
Bursting the bubble
This is a good thing for buyers, but as a seller, if your retirement plan is to sell your mom-and-pop shop and retire to the Bahamas with millions of dollars left over from the transaction, you will be sorely disappointed. I was surprised to learn what small businesses actually sell for. If you know your own business and how much you take home each year, it only makes sense. Many of us put in long hours, underpay ourselves and there is still no money left over at the end of the year. If this is hitting too close to home, really pay attention to the next insight.
Understanding your own business
Back in 2014, we had been putting in minimum 14-hour days seven days a week for a year-and-a-half, often stretching to 18 or even 20 hours. I barely knew my one-year-old daughter and both our wives were very frustrated because we were never home. One of our customers was in the shop to pick up some decals and we were talking about how crazy busy we were and how we were struggling to keep up. He did not talk about how awesome that was or give us the old “well, that’s a good problem to have.” He looked us dead in the eyes and asked, “Yeah, but are you making any money?” The question nearly knocked me on my rear end because I knew the answer, and I knew I was not going to be proud to have to say it out loud.